Warning: Get Ready to Pay for Carbon

AUSTRALIANS have paid a “high price” for the emissions trading scheme delay and the Gillard government should establish a carbon market as soon as possible, according to blunt advice from the federal Treasury in the normally top-secret “red book” prepared for an incoming Labor administration.

The “red book”, which landed on Wayne Swan’s desk the morning after the election, also warns the $43 billion national broadband network carries “significant financial risks”, that the strong economy could fuel inflation and the rapidly rising population projections both parties disavowed during the election campaign were largely unavoidable.

Released following freedom-of-information requests, the advice will add to growing business pressure for Labor to legislate some form of carbon price during this Parliament and comes after the BHP chief executive, Marius Kloppers, called for Australia to move quickly on the matter.

Julia Gillard went to the polls promising a “citizens’ assembly” to build public support before deciding whether she would proceed with Labor’s shelved ETS.

But Treasury told the Prime Minister that “the sooner an ETS can be implemented the better. Too much time has already been wasted – for which the Australian community will necessarily pay a high price.”

Last night the shadow treasurer, Joe Hockey, also released the “blue book” Treasury prepared for an incoming Coalition government. This said that even Australia’s minimum emissions reduction target of 5 per cent by 2020, supported by both main parties, “cannot be achieved without a carbon price unless damaging economic and budget impacts are to be imposed”.

Treasury tells the Coalition that its “direct action” climate policy would be more expensive than a “market-based mechanism”.

During the campaign both parties emphasised the need for a “sustainable” population, but Treasury says strong population growth will continue for at least the next 15 years.

Even if internal migration slowed to 60,000 a year for the next four decades, well under the 100,000 average for the past 40 years, the population in 2050 would still hit 29 million.

“Net immigration figures well in excess of that low number are probably inescapable,” Treasury says, adding that strong population growth “is not necessarily unsustainable … it need not adversely affect the environment, the liveability of cities, infrastructure and service delivery”, so long as governments planned well.

Treasury warns that the national broadband network, which was a plus for Labor during the campaign and in its successful negotiations with the country independents, could meet its policy goals but “carries significant risks, including financial risks for the public balance sheet.”

It recommends changes to water policy and says Labor’s election policy to buy back whatever quantity of water allocations is recommended in a yet-to-be-released Murray-Darling Basin Authority report “presents significant fiscal risks”.

It also cites “glaring” failures in national housing, electricity and transport markets and advises the government to increase the power of its adviser, Infrastructure Australia.

In 2008 that body lamented the lack of big projects ready for government funding. “The situation has not changed,” Treasury says.

It urges Labor to move fast on state tax reform, to shake-up the apprenticeship system, and to rethink the free trade agreements it is negotiating, whose benefits have been oversold.

Overriding all its other recommendations, it advises the government to stick to its stringent rules to bring the budget back to surplus.

The government yesterday released its final budget position for the 2009-10 financial year. The $54.8 billion deficit was a $2.3 billion improvement against what was expected at the May budget. It reaffirmed the promise to bring the budget to surplus by 2012-13.